The South African Revenue Service (Sars) is undertaking the largest revamp of its diesel refund system since it was introduced in 2001 to minimise costly errors highlighted by the recent R5bn settlement with Eskom over unduly denied refunds.
The tax agency disallowed diesel refunds to Eskom for two years — only to later admit it was wrong to do so — forcing the agency to settle the matter for R5bn, a refund that has been held up in the courts after the Road Accident Fund (RAF) interdicted the payment on the grounds it would undermine its ability to pay accident victims and employees.
Diesel refunds by Sars increased from R7.3bn in 2023/24 to R13.6bn in the 2024/25 financial year, largely due to the Eskom settlement.
The diesel refund scheme allows a refund of all or part of the general fuel levies and RAF levy to producers in certain sectors.
Dedicated platform
Sars is now creating a dedicated platform for qualifying users and sellers to register and claim diesel refunds, which have often been a point of contention between the agency and taxpayers.
Some of the technical challenges with the old system included cumbersome VAT administration for small businesses, with entities such as joint ventures inadvertently excluded.
Many businesses could also not meet the acceptable compliance level for a logbook. The new system will allow simplified logbooks specific to entities.
A big challenge was that the old system was open to abuse due to no risk profiling or validation done before accepting applications to register for the scheme, making the process vulnerable to refund fraud.
Tighter oversight and controls
According to a letter sent by Sars to primary sectors in December and seen by Business Day, the revamped system introduces several advances.
These include the processing of diesel refunds independently as a standalone refund from VAT and traceability through the mandatory registration of sellers, improving oversight and compliance across the supply chain.
Companies will also be able to track the progress of their claims in real time while the system also has automated validations built in, designed to minimise errors and reduce processing delays.
Industries such as forestry, marine industry research vessels, coastal patrol vessels, fibre optic telecommunication service vessels, electricity plants exceeding 200MW per plant, and locomotives used for rail freight also qualify for diesel refunds.
The reform comes after a comprehensive review was done of the diesel refund to resolve challenges encountered with the system.
The review led to legislative amendments, separating the diesel refund from the VAT system and modernising the whole value chain. The tax agency will, between now and February, pilot the new registration system.
Sascha Astle, specialised tax manager at PKF, said Sars recently intensified its audits of diesel refunds. In some cases, Sars is even revisiting claims going back more than two years.
Many vendors, especially farmers, have seen their diesel claims disallowed simply because the required supporting records, and particularly the diesel logbooks, are either incomplete or inadequately maintained, Astle said.
The diesel refund system is one of the only benefits we get from the government. Organised agriculture is committed to maintaining its integrity. We are all for making the diesel rebate system corruption-proof,
— Corné Louw, Grain South Africa
Grain South Africa, head of applied economics & member services, Corné Louw, said the industry welcomes the move by Sars.
“The diesel refund system is one of the only benefits we get from the government. Organised agriculture is committed to maintaining its integrity. We are all for making the diesel rebate system corruption-proof,” Louw said.
“There was an overreach in the previous system, in terms of compliance. I think that’s where the new system will definitely assist in terms of some of the grey areas.
“The process to revamp the system has been on the cards since 2017. The likes of AgriSA and Grain SA participated in the consultation process. We fully support the electronic system, which is similar to e-filing. We also support not linking the diesel rebate to VAT.”
Sars is on a big modernisation drive with AI set to play a significant role in tax administration.
The agency last year went to market, looking for cutting-edge AI technology to improve its efficiency, which it has said is at the heart of its bid to recoup about R800bn in uncollected taxes.
The tax agency, in its request for information, said it was looking to procure AI capabilities to enable it to “replicate and automate complex, human-logic decision-making processes across its operations”.
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